XP pro Upgrade - "on top" or separate partition?

Hi
I am trying to pick up courage to install a Windows XP Pro upgrade package and would value advice on most sensible way to go about it. I have a 60GB hard drive of which 20GB is used but unfortunately I did not partition it before loading W98. I do have Partition Magic...so the Questions
1. Can I use Partition Magic to divide up my HD now? What are the risks of losing data? What programmes can I run while partitioning takes place...presumably I will have to shut down all antivirus, firewall and proxy server programmes?
2. If I can partition then presumably I am best to load XP upgrade into new (unused) partition and thus keep both W98 and XP as separate OS.? Will they be able to "see" each other?
3. If I bite the bullet, can I just load XP ontop of W98 - what are the risks of losing data/email etc? I know a clean install is better but has anyone done this?

I am terrified of losing data - some of it is backed up but not everything and from previous experience the "not everything" bit often contains some vital stuff. Also, my W98 setup has been behaving beautifully (apart from a few mishaps) for some months now and I am not sure if I have the time or energy for a major (self inflicted) problem...one of the major factors prompting this upgrade is that I have a Firewire CDRW but it wont work with W98 FE. Any help appreciated
Thanks

It's always best to back up all critical data before making any major changes to your system.

Partition Magic should be able to partition your HD without losing any data.
However, if you have an upgrade version of XP, instead of the full version, then it has to be be installed over an existing Windows version, i.e., it cannot be installed on a separate partition which is not occupied by a qualifying Win O/S.

What I would do is create 2 more partitions with PartitionMagic.
(All this is done with PartitionMagic)

1) Shrink the C down to about 200MB larger than volume used.

2) Create one large extended partition of the remaining 40G.

3) Create 2 logical partitions in that extended. (D and E) Make sure the E partition is large enough to copy the C part.

4) Copy the C partition to the E partition. This'll save all your stuff. This is what I do at work when upgrading.

5) Make sure it's all there (on E) then format the C partition.

6) Hide the E partition. Whenever I'm installing an OS I hide any other OS to avoid problems.

7) Format C and install XP.

8) Unhide the E partition.

At this point I'd again shrink the C to about 10G as you don't need a huge OS partition. Just OS and programs, all data should be put on another part. Then expand the D to take up the extra space from the shrinking of C.

An upgrade XP can be installed as a clean install IF you've got a 98 (or other) CD. Not an OEM restore disk. At some point during the install you'll have to insert the 98 disk to prove you've got a qualifying OS to upgrade.

Now you'll have a clean install of XP, a data partition, and all your stuff from before.

When your sure you've got all you want off the E partition you can format that also. I usually wait 6 months or more.

Thanks for the helpful suggestions. In the end I copied the most important data files to another (networked) computer and then "upgraded" W98 by installing on-top. It has worked fine but I am having to use FAT32 rather than NTFS...just one or two little gliches but at least I am still able to read these forums. Better go to see what they have been saying on the XP boards now!!!